CBO spells out fiscal cliff consequences

A new Congressional Budget Office report on Thursday laid out the consequences of going over the “fiscal cliff” of automatic tax hikes and spending cuts, and the results aren’t pretty for deficit hawks.

Eliminating the defense cuts alone, for example, would cost $24 billion in 2013. The nondefense cuts are even costlier, at $40 billion in 2013 and $61 billion in 2014.

Extending the Bush-era tax cuts and indexing the Alternative Minimum Tax would be even worse for the deficit, costing $330 billion in 2013.

Two days after President Barack Obama’s re-election – and one day after Wall Street took a beating on cliff-related fears — Washington is trying to figure out how to avoid the expiration of tax cuts and the sharp spending cuts set to take effect in less than two months.

To be sure, lawmakers aren’t under an obligation to make a deal on the fiscal cliff deficit neutral.

Standard & Poor’s earlier Thursday said that there is a 15% chance that the U.S. will go over the cliff.

The CBO said that the U.S. economy would shrink by 0.5% in 2013 and the unemployment rate would go up to 9.1% from 7.9% if the full effect of the fiscal cliff

Analysts expect lawmakers and the White House to work out some sort of compromise to avoid the fiscal cliff, and work out a longer-term deficit-reduction package sometime next year.